Chandra Singh Saud
Chief Executive Officer, Nepal Stock Exchange (NEPSE)
Nepal's stock market needs reforms at multiple
fronts. Implementing an online trading system, attracting Foreign Direct
Investment (FDI) and real sector companies to the exchange, raising awareness
of the investors, and initiating policy reforms are some of the issues that
need immediate address. At the same time, the capital market regulator, the Securities
Board of Nepal, is set to establish a private sector exchange while the
government- run Nepal Stock Exchange (NEPSE), the operator of the secondary
market in the country and frontline regulator, is putting its effort to introduce
a foreign strategic partner.
Chief Executive Officer of the Nepal Stock
Exchange (NEPSE), Chandra Singh Saud, says that the company is initiating
reforms to enhance the efficiency and performance of the exchange.
Modnath
Dhakal of The Rising Nepal talked to
Saud about the issues of VAT and other challenges that have surfaced recently.
Excerpts:
Why does the government intend to impose the Value Added Tax
(VAT) on the share brokers when the legal provisions exempt financial services
from it?
This issue has been
surfacing time and again. The brokers had protested the VAT when the Inland
Revenue Department (IRD) tried to implement it. As per my personal opinion, the
capital market is about financial services, and rules have exempted financial
services from the VAT. But it's up to the government to implement the tax
system. However, in international practices, VAT is not imposed on financial
service delivery institutions. Therefore, if we want to allow the capital
market to grow, it's better not to implement VAT.
But the brokers say that the implementation of VAT on
trading of securities will add a financial burden as the investors will have to
pay an additional 13 per cent tax along with the commission to brokers?
That’s right. The NEPSE
will discuss the issue with the brokers and will try to lobby for not executing
the VAT system. What I personally believe is that the government should try to
expand the tax-base instead of imposing the VAT on financial service providers.
The issue should be resolved as soon as possible. Indecision brings instability
in the market and confuses the investors, which are detrimental to the healthy
growth of the capital market in the country.
The government can raise
more revenue from the capital market with more transparency in the market, and
raising the tax base and rate.
What is your take on establishing a second stock exchange
with private sector investment?
I am an employee of
NEPSE, therefore, what I say might not hold relevance in terms of the
requirement of another stock exchange. But no situation has arisen so far in
which the NEPSE couldn’t bear the load of business and transactions. The number
of listed companies has come down due to mergers and acquisitions. The NEPSE
has always tried to provide efficient services to the investors and facilitate
the secondary market stakeholders. When the online system is fully implemented,
it will counter the need of a second exchange.
However, we must reform
the current structure of NEPSE. It must be able to provide international
standard services to the investors. I would like to assure you that we will soon
be able to make it happen. The software used by NEPSE has also delayed the
reforms. Instead of buying the latest and tested software in the international
market, we tried to modify and upgrade the one that we had, and it delayed the
process. Therefore, I don't say the country doesn't need a second stock
exchange, but I would certainly say that NEPSE will be reformed so as to make
it more professional, able and efficient. There is also a possibility of
introducing a foreign strategic partner in the company, which will support in
transferring the latest technology, management practices and professional
skills.
What should be done to reform the market?
The online trading
system is the most basic prerequisite to expanding services across the country.
Capacity enhancement of the employees at NEPSE and transparent transactions are
other elements of reform. Implementation of Dematerialisation of Shares (D-Mat)
and Applications Supported by Blocked Account (ASBA) has a very positive impact
on the capital market. As a front-line regulator, NEPSE has the mandate to
conduct surveillance in the market to make the transactions more transparent.
We are thinking of forming a separate team for market-inspection. Increased
transparency will benefit both the government and the investors. A rooster of
experts from various sectors is being created to study different sectors of
investment and listing the companies of those sectors at NEPSE.
But the Securities Board of Nepal (SEBON) is spearheading to
establish a second exchange?
Yes, I have heard so.
But NEPSE is increasing its capacity and efficiency, making reforms at multiple
fronts. I hope we will be able to convince SEBON and other stakeholders about
our capacity so that they will reconsider the need for a second exchange.
SEBON had directed NEPSE to implement an online trading
system to facilitate the investors outside the valley. Has there been any
progress?
There has been an agreement
with the developer for the implementation of an online system before April next
year. So the software will be ready before that. It will be fully implemented
from the new fiscal year – July 15, if not in April.
Although the government has allowed Foreign Direct
Investment (FDI) in the stock exchange, it has failed to attract any. Is it due
to the poor investment climate in the country or inefficiency on the part of
the regulator?
The government had made
the move with the intention of attracting investment from the Non-Resident
Nepalis (NRN) in the capital market. So, SEBON and NEPSE all are positive about
it. SEBON recently formed a committee to look into the issues, such as the size
of investment and profit repatriation, and create a modality for FDI in the
stock market. When the modality is prepared, we will start marketing for it,
reach out to the Nepali diaspora and educate the potential investors. I think
we should hold a joint discussion among SEBON, NEPSE and the NRN Association
executive committee in this regard. We are in the process of getting feedback
on the matter from the NRNs. So, there is no one to blame.
What are the current challenges faced by the capital market
in Nepal?
We are a small economy
and, at the same time, our economic condition and per capita income are very low.
Majority of the people are concerned with making both ends meet. Although they
want to invest in the share market, they don't have enough money to materialise
their intention. However, the market and awareness are growing simultaneously,
which gives us hope that the market will be more developed and advanced.
Another challenge is the
centrality of the capital market, which is also being addressed. As a result,
41 locations across the country have branch offices of the brokerage company.
Now people need not come to the capital to invest in the securities.
There is also a need to
raise capital market-related awareness. Some people are apprehensive about the
share market due to the failure of some public enterprises, such as Gorakhkali
Rubber Industry and Nepal Development Bank Limited. Also there are some
companies which have been unable to pay dividends to the investors for more
than a decade. Some public companies do not hold their Annual General Assembly
in time, and investors don't get the dividends and bonuses. These things should
be improved. But many investors know that such events are sporadic.
What about policy reform?
We have prepared a new
policy draft, which will soon be sent to SEBON. We are amending the policies
related to the rights announcement, share auction and margin trading and
revising the organisational and management policies. We are thinking of
introducing new human resources policies with an aim of enhancing efficiency of
the employees.
Do you think political stability will have a positive impact
on the capital market?
Certainly, it will have a
positive impact on the capital market. When there is political stability, the
political parties will have no other agenda other than economic development. It
will build confidence among the investors.
Published in The Rising Nepal daily, 2017 Dec.2
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